The economy has partially recovered from the impact of the coronavirus containment measures imposed earlier in the year, but it will be a long time before it gets back to normal. Even if there are no new nationwide lockdowns, we suspect that economic activity will be below pre-crisis levels until end-2022. Meanwhile, the gap between countries will widen as those which have been worst hit by the virus, have the largest tourist sectors, and/or have the least room for fiscal stimulus, will suffer the most. The ECB will do enough to prevent a new euro-zone crisis in the coming year or two but will not reverse the downward pressure on inflation, and nor will it be able to contain Italy’s rising debt burden.
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